Central Bank uses Sh27bn reserves to pay national debt

About Sh27 billion ($300 million) of foreign exchange reserves has in the past few weeks been used to repay overseas loans and intervene in the market.

The national reserves now stand at Sh632 billion ($7.1 billion) or 4.68 months of imports cover compared to just over Sh659 billion ($7.4 billion) or 4.85 months of import cover a few weeks back.

The Central Bank of Kenya (CBK) said the earlier reserves were the highest the monetary authority has ever held.

CBK said it had paid out the foreign currency as a banker to the government for obligations such as external debt, import of goods and services and maintenance of the country’s foreign missions.

“During the period, the bank made substantial foreign currency payments in this regard,” said the CBK in response to enquiries from the Business Daily.

It also sold some dollars to the market.

“(We do) market intervention to buy or sell forex to the local interbank market in order to address any wild oscillations of the currency. During the period under reference, the CBK sold some dollars into the market,” CBK said.

According to information from the bank, the erosion of reserves was also impacted by the value of the dollar relative to other currencies in which the forex kitty is held.

CBK noted that whereas the overall reserve is shown in dollars, the reality is that it is composed of several other hard currencies, which may gain or lose against the greenback thus altering the level of reported reserves.

“In the period under review, both the euro and the pound sterling lost against the US dollar in the international markets owing to strengthening of fundamentals of the US economy. The CBK invests in these two currencies among others,” said CBK.

CBK took in the foreign exchange recently realised from the sale of the Eurobond, where the government took $2 billion out of more than $8 billion offered by investors.

The cash was delivered on June 24, but is only shown as usable reserves when the government spends it. This means it is changed into Kenya shillings and the forex surrendered to the CBK.

When the reserves reached the record $7.4 billion, CBK acknowledged it largely originated from the sale of the Eurobond.

“This represents a build-up of over $1.1 billion, largely originating from sale of sovereign bond proceeds by the Government. The current level of import cover is the largest that CBK has ever attained,” said the bank.

The forex cover helps cushion the economy against unforeseen forex demand.